Problem

Curves are converted into LineStrings when changing Coordinates using
coordinates taken from Projected in "Geographic Coordinate System"
Library.
(MS V8i SS2 and V8i SS3)

Solution

Change the setting "Stroke Curves to Line Strings" to "Never" in "Edit Reprojection Settings" .

Also the following link regarding the Reprojection Settings is quite
useful:

http://communities.bentley.com/products/microstation/w/microstation__wiki/reprojection-settings.aspx